Combining and pooling pensions

Combining and pooling pensions

As you are probably already aware, a Small Self-Administered Scheme (SSAS) is the most flexible of UK pensions. It offers control and flexibility, long-term growth, tax efficiency, investment choice and much more. Another key advantage of switching to a SSAS is that you are able to combine all of your pensions into one easy to manage scheme. In addition, a SSAS can have up to 11 company or family members who can also do the same with their own pensions, all coming together to create one big and powerful pot. 

Combining your pensions

Most people have a number of jobs in their lifetime, moving between companies and often eventually starting their own business. This means, you are likely to have built up one, or usually several, workplace and personal pension pots. For each, you are paying charges and fees with little idea of what is going on. Pension companies decide how to invest your money and send you a yearly statement, informing you of the very basics. Many have hidden or confusing fees and charges and investment strategies are outside of your access and understanding.  

If you are a company director, you can avoid all of the pitfalls of traditional pensions, plus gain enormous advantages, simply by starting a SSAS pension and amalgamating all of your pensions into the one pot.

Combining your pensions has many advantages, including:

Pooling pensions

An additional and unique advantage of the Small Self-Administered Scheme pension (SSAS) is that it can have up to 11 members, within HMRC rules. 

Each SSAS members is able to transfer in their own pension funds. For each member, this has the same advantages that come with combining their own pensions, mentioned above, and each member retains the same percentage of the SSAS pot as they put in, as the pot grows. 

Not only do members all potentially reduce their pension fees and charges, but this also means that the SSAS has a much larger pot of money to use for its growth strategies.  

For family businesses, the ability to pool pensions within a SSAS means that the funds are protected and can be used for the business, even after the death of a SSAS member.  

Once funds that members previously held in individual pensions are pooled within the SSAS, the SSAS has greater buying power and a wider choice over the investments it makes than the individuals would have had without pooling. This means that for all members, their retirement options can be confidently managed, with innovative strategies to continue growing the SSAS pot for all members, as some retire or step down from the business.  

Pooling pensions to increase investment power

Within HMRC rules, a SSAS is allowed to buy commercial property. If an individual cannot afford to buy the property, combining and pooling pension may be the solution. It is the ideal way to increase purchase funds and continue to grow the pot. For example, a SSAS might decide to buy the company’s trading premises. By doing so, the company then pays rent to the SSAS, which is a business expense and so a tax efficient strategy for the business. The rent received by the SSAS is not liable for income tax as it is within a pension scheme, growing the SSAS even more quickly. Any capital gains on the sale of the premises would also not be liable for Capital Gains tax, as within a pension. As the company is paying rent to the SSAS, it is essentially its own landlord, making management and administration far simpler. Rent paid out from the company will reduce the year end profit, therefore provide further tax efficiency. However, all funds are still retained either by the company or the SSAS; a win, win situation.

Loan to the company

For those wanting to grow the business but struggling to achieve the required cashflow, combining and pooling pensions could be the answer. A company director can start a SSAS and combine his or her own pensions, but in addition, can invite other company members or family members to also join the scheme and transfer in their own pension funds.  

HMRC rules dictate that a SSAS can loan up to 50% of the pension pot to the company for any valid business purpose. This SSAS function is called ‘The SSAS Loanback’. The company must pay the loan back within five years, with interest at a rate of at least 1% above market base rate.  

The more combined and pooled pensions that a SSAS invites in, the greater the 50% value available to loan to the company. 

Some companies take a SSAS loanback and set the interest rate at the minimum to provide a cheap loan in difficult times. However, a common strategy is to set the interest rate much higher. As the repayments are a business expense, this is a tax efficient strategy. It also reduces year-end profits, hence reducing the year-end tax bill yet the funds are still under the company/SSAS umbrella. The SSAS pays no tax on the income it is gaining via the added interest and so the SSAS grows more quickly, the company has the cashflow it needs for growth and tax efficiency is optimised. Once again, a win, win for the company, the SSAS and the pension value of the SSAS members.  

This is a brief overview of the advantages of combining and pooling pensions, achievable by switching to a SSAS pension. Please take some time to look through our website and discover the many unique advantages that the SSAS pension offers. Each situation is different and there are many different and innovative strategies that can be employed to solve your problems and offer great advantages to your business, property goals and personal retirement plans.